While the S&P 500 has declined 0.3% year-to-date (YTD) through Tuesday afternoon, the total average return for hedge funds has outperformed with a near 0.4% gain in 2018. HFR attributes the boost to well-placed bets on the bond market and a sharp rally in energy prices. These positive factors helped the industry post a 0.38% gain in April, while the U.S. equities market, reflected in the S&P 500, posted a loss, including dividends, of an equal magnitude through the same first four months of the year. (See also: Activist ValueAct Takes $1.2B Stake in Citigroup.)
While both the S&P and the hedge fund space suffered through a weak start to the year, thanks to a wave of uncertainty and volatility injected into the global markets, the outperformance of hedge funds is significant as it is the first time the industry has managed to beat U.S. equities since 2008. A decade back, at the peak of the financial crisis, U.S. equities lost 37%, while hedge funds suffered through a less brutal decline of about 19%.
Outperformance Seen Through Mid-2018
"The industry continues the process of evolving transitional politics and economics creating long and short opportunities across a wide continuum of specialized exposures and industries, including fixed Income/interest rate-sensitive equities, retail, M&A, technology and blockchain," said HFR President Kenneth J. Heinz in a written statement. He expects this "powerful process" to provide continued upside for the hedge fund space, while new growth markets such as blockchain, the underlying technology behind cryptocurrency transactions like bitcoin, are likely fuel outperformance through mid-2018.
A rise in oil prices has benefited the energy segment, which has seen a 1.5% gain YTD in the S&P 500 Energy sector and a 2.3% increase in the HFR Energy/Basic Materials Index over the same period. Cryptocurrency funds have also boosted hedge fund industry this year despite a crash in March. The HFRI Blockchain Composite Index jumped 47.1% in April following a 19.3% fall the month prior, while the HFRI Cryptocurrency Index soared 48.5% in April. (See also: Crypto Funds Dropped 29% in March.)